Forget yer Mars, because it turns out Source Filmmaker's script files are peppered with references to a next-gen Source engine. Over 60 mentions of Source 2 can be found in the SFM code, reports ValveTime, confirming that the engine's been in development alongside the filmmaking tools, with one line specifically stating that "If key doesn't doesn't exist, assume 'Source', otherwise invalid -- assume next-gen 'Source 2'.'" Assume next-gen 'Source 2'! How's that for a smoking gun? That'll be your new Source engine then.
A set of Source 2 specific tool icons were also revealed by a Facepunch member, with names like 'terrain_tool_edge_smooth'. Fie on your jagged hills and pointy buttes, Source 2 won't be having them. No further nuggets have yet surfaced on what, exactly, Source 2 will be capable of, though Gabe Newell has previously mentioned an interest in image-based rendering, which (as long as you don't think about it for very long or with any effort) is a bit like a modern take on voxels.
Valve's current Source engine has been knocking about since 2004, receiving constant incremental updates to keep it looking sharp. "We don’t like to brag," writes Valve on their company info page, "but Source is considered the most flexible, comprehensive, and powerful game development environment out there. And it’s about to get even better."
It's telling that the publicly available Source Film Maker would be vaguely forwards compatible with Source 2, suggesting that the new tech is somewhere on the horizon. And what a lovely smooth horizon it will be.
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